5paisa Capital Limited (5PAISA) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. I'm Soumya, moderator for the conference call. Welcome to 5paisa Capital Limited Q3 FY '24 Earnings Conference Call. We have with us today Mr. Narayan Gangadhar, MD and CEO of 5paisa Capital Limited; and Mr. Gourav Munjal, Whole-Time Director and CFO, 5paisa Capital Limited. [Operator Instructions] Please note, this conference is recorded. I would now like to hand over the floor to Mr. Narayan Gangadhar, MD and CEO of 5paisa Capital Limited. Thank you, and over to you, sir.

Hello, everyone. Good afternoon, and welcome to our Q3 FY '24 earnings call. On this call, I'm joined with Mr. Gourav Munjal, our Chief Financial Officer. Q3 has been a great quarter for investors and the broking industry. Nifty touched an all-time high, and the overall industry saw an addition of more than 96 lakh demat accounts. The total demat account of the country stood at 13.93 crore. In Q3 FY '24, we acquired 2.3 lakh customers, reflecting a 71% growth quarter-on-quarter, and our total customer base has reached 39.6 lakhs. Further, our market share in incremental client acquisition has grown from 1.3% in Q2 FY '24 to 2.4% in Q3 FY '24. During the past quarter, our total average daily turnover grew to INR 3.7 trillion, an 80% year-over-year growth. Our average client funding book stood at INR 317 crores, a growth of 18% quarter-on-quarter. And the mutual fund AUM reached INR 801 crores, a 20% compound growth. We are happy to report that we have achieved our lifetime highest revenue in Q3 FY '24 of INR 100.3 crore, and our profit after tax stood at INR 15 crores, a growth of 37% year-on-year. Further, we have ended 9 months FY '24 with a revenue of INR 281 crores, and our PAT stood at INR 48.6 crores a growth of approximately 68% year-over-year. This quarter has been a marquee quarter for our product. In the last earnings call, I had outlined that we have undertaken a major initiative to overhaul our product and tech platform. And I'm happy to report that we have taken significant steps in that direction. We have rebuilt and launched our entire product onboarding journey, placing a strong emphasis on UI and UX. We have introduced industry-first features such as Reverse Penny Drop, Account Aggregator integrations and API optimizations to significantly speed up the onboarding process. We enhanced the option chain by introducing support for various indices such as Sensex, Midcap Nifty and FIN Nifty alongside Nifty and Bank Nifty. We introduced bulk order modifications, a game-changing feature, which allows users to edit multiple orders simultaneously. This is a game-changer for high-volume traders, marking an industry-first launch. We also optimized our option chain journeys to support straddle and bulk orders, allowing users to place multiple orders effortlessly in a single click directly from the option chain. Last quarter, we had also discussed various initiatives, which we have undertaken to overhaul our MarTech stack. This is critical to help us scale and acquire more customers digitally. This quarter, we successfully implemented an omnichannel communication strategy, tailoring interactions to users and preferred channels. We curated the client communication plan that included best practices in terms of content, channel and trigger time. Reducing the lead churn from 30 days to 7 days to connect with users very early in their onboarding journey has led to better conversions. We have been actively focusing on scale while optimizing on lower funnel events, such as buy sell trades in F&O cash commodity segments. More such initiatives are underway as we build in the best-in-class digital engine to acquire customers at scale. As we discussed in the last quarter, we expect these initiatives to land in the coming quarter and also in the next quarter. Finally, I want to end the call with restating that we are a technology-first company. We are going to continue investing in new technologies, especially in security, AI and data science, and build fresh product capabilities to further scale our digital-enabled revenue pipeline. We will continue to invest in MarTech and augment our customer acquisition in coming quarters to set the stage for future growth. With this, we would like to open the meeting to any questions from the audience. Thank you very much.

[Operator Instructions] Our first question comes from the line Devvrat Himatsingka from Augmenta.

Sir, very refreshing to see a good set of numbers. I just wanted to -- I was not able to understand the ESOP bit and how -- you are continuously issuing new ESOPs and taking approvals for that. So can you give us some guidance on what that looks like and what kind of expenses can be incurred because of that going forward? That would be very helpful. And sir after you answer this, I'll just come to my next one.

So right now, our ESOP is at -- we had got it approved from the shareholders, and the same has not been granted to the seniors as of now. But currently, it is -- approximately, it is in the range of that INR 60 lakh to INR 80 lakh in the quarter, which going forward, may increase -- which may increase going forward. And -- because once it is granted, only then we can take into the finance and accounting.

Okay. So what kind of impact could we see this having on the employee cost, like overall, if you can shed some light on there?

So that depends upon the numbers and the people who are going to be joined in the future. So once it's granted, but yes, we need to follow that Ind AS and all. And -- but generally, in that case, major of the costing comes in first year and then it's reduced in second and third year.

Okay, okay. And sir, one other question I have is like we are planning to move from T+1 to T+0, say, by March, April. Do you think it can be seamlessly implemented? And do you think this would increase volume significantly going forward?

So first of all, I think yes it can be seamlessly implemented, but I don't see it impacting the volume. If anything, it impacts more -- it does introduce slightly more liquidity in the market. But the measured impact is not really going to be that significantly high. But I do believe this is a good step forward in terms of clean governance...

No right, sir, absolutely. Sir and just 1 last question, sorry. How much cash do you have on your balance sheet?

So it would be approximately INR 70 crores to INR 80 crores right now.

INR 70 crores to INR 80 crores?

Yes.

Our next question comes from [ Krishna Prasad ], an individual investor.

Yes. Congrats on a good set of numbers. Sir, I want to know that your market share has reduced in this quarter. So any reason, sir?

What has reduced?

Market share.

Market share. Yes. So over the past, if you look back at the history of 5paisa going back to the start of the year, right, from June of last year we actively were in a phase where we wanted to improve our digital efficiency. So as a result of which, we -- really the focus was on essentially achieving more profitability and getting the system to a state where we can again get back to scale. So as a result of which, our goal was really not to acquire customers. See, it's very easy to throw money and get customers in the market. Everybody is doing it. There's no rocket science. We believe that's not a strategy we want to pursue just yet. As a result of which, after I joined, we made an active decision to actually decelerate growth. So whatever you see is completely planned. And I expect the market share to stabilize only in a few quarters. Because it doesn't make sense to continue spending money when we are not able to get the ROI we want. So right now, the growth that I'm reporting, that is coming at the right level of unit economics which we can support. So the key is going to be to scale that, and that's the reason why you see a deceleration. And you will expect to see this next quarter as well before we stabilize.

Okay, sir. So sir -- I'm sorry. I'm sorry for that.

No problem.

Yes. So in the -- yes, in the next 8 months or next year, so do we have any target in terms of OPM, OPM at -- operating margin at 30% in that channel? So any guidance on that?

See, we cannot -- we don't give any guidance on that. But this year, as I've said in the previous earnings call, this year and the subsequent quarters to come are going to be all about scaling and growth. So there will obviously be new costs. There will be cost in terms of client acquisition. There will be costs in terms of ESOPs. There will be those kind of expenses, which -- lot of which will be onetime in just getting the process and the buildup to scale. So I would say that, as of now, we don't give any particular guideline but we will obviously be within the same range as we have always been historically. I don't see that changing, per se.

Our next question comes from Mitesh Kamdar from Aditya Equity Investments.

I have a question regarding the other expenses. There is a marked increase in other expenses this quarter. Any reason for the same?

There is a...

Marked increase in other expenses this quarter.

So actually, as you see that advertisement cost is a part of other expenditure. And our acquisition has grown up from 1.35 lakh to 2.32 lakh. So yes, it is in the line of the acquisition.

our next comes from Deepak Poddar from Sapphire Capital.

Am I audible, sir?

Yes.

I'm, sir, little confused. I mean, in the sense, now you spoke about that we had planned to de-accelerate the market share, and at the same time, our other expenses and advertisement cost is increasing. And our -- the number of client addition is also increasing. So I'm not able to understand, I mean, at one time, we are planning to de-accelerate market share and at the other time our cost is increasing and even our gross addition in clients is also higher. So where is this mismatch we're talking about?

Yes. So see the costs are only increasing in this quarter, okay? So the decision the decelerate was taken around in June of last year. So it's been good for the last 2 quarters. And only now, we have decided to accelerate again. So the cost increase you are seeing is from there. Now because of this, what has happened is because the -- the reason we decelerated, it's very important to remember this, is that the reason for deceleration is because we wanted to improve our digital acquisition engine, we wanted to build the product journeys and we wanted to get that right. So we laid a -- that is the conscious call. So now we are at a point where we believe that in a quarter or so, we will be ready to ramp up the engine and scale it further. And this quarter onwards, we have just started that work. That's why you see the costs going up. And that's how you see the acquisition numbers where they are today.

Okay. So you do expect your market share, I mean, which has declined from 3.2% to 2.8% in this quarter to further decline in the fourth quarter, right?

Yes. I do.

And from first quarter, you expect -- I mean, to see the upward trajectory in terms of your market share?

Yes. And see, I also want to add 1 more point, right? If you look at most businesses, which are like ours, right, you will see that generally when the deceleration happens, you grow only at the rate at which you incrementally acquire customers. This is the rule of thumb. So if you take any leading player, generally, you will grow only that rate because no one has a secret sauce to acquire better customers than anybody else, whether it is us or the next 2 players above us. There is absolutely no differentiation in the acquisition engine whatsoever. So whether you see 10 lakh acquisitions per month, 30 lakh or even 1 crore acquisitions per month, the reality is it's ultimately just a financial game and nothing else more than that. Now the key is to play that we have to get digitally highly, highly efficient because the differentiator is who has a better engine, not who can invest more capital. So the way we are approaching it is that because for 5paisa, we -- for many years, we really never invested in technology. We never really invested as much as we wanted. I mean, we always are a technology company, but we never really -- it was not so much of a priority. So it was always -- the engine was not built to scale. But in these last 6 months, we have put a lot of effort in getting the engine back up where we believe now in a quarter or so, we will increase. So the deceleration is happening because of clients which have been acquired in the last quarter and the quarters before. Anybody who we have acquired now, we are seeing excellent performance from them. And we will see their impact only in the coming quarters because generally it takes the client a quarter or 2 to get settled in, just to learn the system, to get acclimatized and they look for the right opportunity. So there is a cool-off period. And that's why I'm saying that the market share will dip before it corrects again.

Okay, okay. But -- I understood that point. But I think in the last call, we were of the view that we are looking to double our market share in 1 year. And accordingly, our revenue growth will also likely to follow. I mean, we may not have 1:1 kind of a correlation, but maybe 1:0.5 kind of a correlation, a 0.5, 0.7. So is there any change in the view on that front? And how do we see that going forward?

No, there is no change in the view. It's just that for accelerating at that space, we can only make that call quarter-over-quarter. There are some quarters where we want to launch something, then there are some quarters where we want to defer it. So we are not time boxing ourselves in the sense that if it makes no business sense, we are not going to spend the money, it's as simple as that, even if it means we have to stay away from the market. So right now, the market is hot. Everybody is acquiring a lot of customers. If you look at the top 3, the numbers they have reported, it's through the roof, right? But we believe it's not the right time to enter the market. So for us, the game plan is we want to wait and watch. And also, we want to get our technology systems in order. So what I'm -- what you will see, though, is you will see a systematic increase in our acquisition plan. And we will definitely have a road map to end the year, that is next financial year, at the numbers we talked about.

So FY '25 end, we are looking at, what, 5% to 6% kind of a market share. Would that be a fair assumption?

See I don't want to put any number to it, but it will definitely be 2x what we have today. The number is -- again, it depends on the quality of customers also that we acquire, we can give away free ETFs and get 5% like some other competitors have done. We can run incentives and get them, there are other security companies which have reached 6%, 7% market share. But that's not meaningful because it doesn't result in any impact to bottom line. So it has to be 5% with the right kind of profitability and other metrics. So please remember that, right?

Correct. Fair enough. Correct. And revenue growth should follow, right, I mean, with some lag?

Yes, exactly. And that is what you're seeing in this quarter as well, right? Yes, you will see this kind of trajectory. Yes.

Yes. So what sort of correlation we are looking at? I mean would it be 0.5 or 1:1 correlation? Can it be possible, I mean, in terms of market share and your revenue?

No. Those kind of correlations cannot be had in this industry. It's too immature to have that kind of -- you can get that at Hindustan Unilever, not here. Here the market is very new.

Fair enough. And your other expenses, I think can you give us the breakup of your fixed cost and the client acquisition cost out of this, I think, INR 50-odd crores you have spent?

So actually, approximately 45% to 50% is related to the advertisement and the customer acquisition basically, and approximately 30% to 35% is our IT cost and rest is the other business cost. This is...

So 45% to 50% is your client acquisition cost, right?

Yes, this includes everything.

Okay, okay. And just my last query. In terms of your margin, you do expect to have some softness in your margin, largely driven by the cost that is expected to come on account of your effort to scale up the business, right, and on the investment that we are looking to do in that tech side?

Correct. That is correct.

Okay. But is there any rough range that this is the, I mean, minimum threshold that we do expect that it should not go below that level? I mean either it's what 25%, whatever, I mean, in threshold -- minimum threshold?

No, we are a growth company. So there is no such range, per se. Some quarters, it can be high, some quarters it will be low. There's no such normalizations that we work for. We work for a certain level of unit economics and certain high-level operating margins. Everything else is, I think, more sensitive information, which we don't disclose on the call.

Our next question comes from Vivek Joshi from Freeturns.

Yes. Heartiest congratulations for achieving the milestone of INR 100 crores on the revenue side. So sir, I was just going through the data for Jan '22 and Jan '23. So the number of active clients which we have at 5paisa has reduced from something 12 lakh to 5 lakh, and our market share has also fallen and from 6th largest broker to, I think we are right now at 12th largest broker. So where do we see, sir, degrowth stopping and the growth picking up?

Yes. See, that is why the company pivoted. I joined the company in Q1, end of Q1 last year. And the main reason was to re-pivot and re-change this curve, right? So obviously, as I mentioned, that a lot of the deceleration that you see is very much in line with the strategy that was planned. And what I see is that over the coming quarters, I do see the trends changing and I do see these numbers coming back to those levels. But it will take us a little bit of time as we figure out what is the right game plan to both launch our new products, which we are working on as well as also build and scale the new technology stacks as well as the MarTech stacks that we are continuing to build.

Okay. But sir, any logical reason for just stopping the inflow for the client? Because every broker out there is kind of acquiring customer like anything, and we are following reverse strategy, so...

Yes, we agree, but the broker is also losing 90% of the customers they acquire, you have to remember that acquisition is not a -- is a very meaningless metric. We have to look at -- ultimately the thing that matters is whether we can curate that customer over a long period of time. So we want to make sure that when we scale, we have the right engagement story for the customers over a period of time. And for that, there has to be proper digitization of our journeys. In terms of digitization, up until last year, we were not as -- we were not amongst the top brokers at all, the top digital brokers. Whereas now, our first objective is to get to that stage. Only then, all these things can be worked on, acquiring more customers and scaling. And if you take an example, if you look from August -- July or August, we were doing roughly only 25,000 accounts per month. And now we are doing -- we are touching almost 80,000, 90,000 accounts per month. So there has been a massive growth. And this growth, I do expect to scale, but there will be both cost and it will take a little bit of time for the revenue to materialize because there is a lead time of a quarter or so before the clients come in and start trading and things like that.

So sir, can we expect something around roughly 1 lakh, or some ballpark figure for the monthly addition for the client for the active side of the investors or the traders?

See, we don't discuss those kind of details here. We can only -- I can only give you the -- you have the prior history, you have the prior data that we always publish in the earnings call, you can go backwards from there. But we don't comment about our long-term strategy here.

Okay. As far as I remember, I think sometime '22, June '22, we discussed over the figure that something around 1 lakh addition is what we targeted, and then we reversed to the strategy and we stopped the client addition. So that was the context I was referring to. So any such kind of figure you'd like to share with us?

No. No. As I told you, those -- taking the number in isolation is not a very useful metric to look at this business.

Our next question comes from Dhaval Gada from DSP.

Just a couple of questions. First is relating to the point on market share. So you talked about the digital strategy, getting the digital strategy, right? You also talked about -- which is internal. The second point you mentioned was around competition being very aggressive on customer acquisition, and you chose to participate less in this market compared to the opportunity that you wanted to capture. And lastly, you also talked about getting the right unit economics in place. Just trying to understand say about 2 or 3 quarters from now, do you think all of this will be in place for you to sort of on a desired level start growing quarter-on-quarter in, I would say, a more planned manner, even assuming the competition is far more intense, et cetera? Or is there anything else that one needs to be cognizant of, that there can be some more delay or some other variable to work out for?

Yes, yes a very good question. So see, this is the main reason that in every quarter, I give a very detailed product update and a very detailed business update as well because we talk about the underlying engine and the improvements we are doing, both on product and tech as well as on the business side. So as you have observed, right, is that there is -- our goal is, in Q2, which is something I have said in the earlier call, last quarter, in Q2 of FY '25, we are gearing up for a launch of our major product and there is a lot of improvements planned before then, but that's where we plan on launching our new services and new products, and this is something I've already mentioned in the earlier calls. So to that end, we want to gear up for that. So for the next 3 months, 4 months, regardless of what is the client acquisition in the market, whether whoever is the top private players, whatever they acquire, is not very much meaningful to me because we believe that there is enough growth in the market we are barely sitting at a 4% market penetration. Even if they win the whole race within the next 2 years, that is not to say that they're going to be around in 5 years from now, because 5 years ago or 10 years back, there was -- the market -- the entire landscape was different, and now it's very different. So it's going to continue to change. So it's very important that we build that playbook. So our first -- obviously, our major launches are coming up in the coming quarters, which is why we give detailed product updates. And also, as I said, if you look at our marketing engine, in my very first earnings call, I had said that we are going to scale, right? And at that time, we didn't give any indication. But you can see that we have scaled from 25,000 to now ending at about 80,000, 90,000, right? So I expect us to follow that trajectory. Now sometimes it cannot be as steep. If we hit snags along the way, we realize that the product development is not moving as fast, then we will scale -- we will descale accordingly. It's very critical for us to not scale for the heck of scaling.

Just 1 follow-up to this and to understand it better is, let's say, by August, September, or October whenever the new stack is in place, the new design is in place. I mean, yes, do you expect it to sort of grow exponential from where you were, let's say, before this planned deceleration that you talked about. And therefore, sort of building your platform and your stack everything in place for a much bigger journey compared to where you were say, 4 quarters back? Would that be fair? Like it should be comparable to what the top 3 or 4 players are doing right now in the market. Is that fair? Or there's still some more things to be done even beyond that, which may take another few quarters or years? I mean, just how should one think about that?

No, no, it won't take beyond that. It won't take beyond that. It is exactly what you outlined. See -- and to give you some sense of our track record, when I joined the company in June, our incremental market share and acquisitions, they stood hardly at 25,000 accounts, something like 1%. Obviously, we have doubled that while keeping our health metrics relatively constant. So this gives you some sense of what kind of North Star we're looking at. So what we have realized is that -- and I have run a couple of other broking firms as well, so I can give from my own experience is that it is extremely critical to not -- to scale only when the digital infrastructure is actually ready. Otherwise, success can mask a lot of the other inefficiencies digitally. So -- and it is not -- and it won't be scalable. So for us, it is very important because we are -- we've just started the digitization journey. And it is very important to keep continuing to build that and to scale only in accordance with that to support future growth. So this is how we see it. But as you rightly said, take around Q2 as we go ahead and launch that and then beyond, yes.

Understood. Very useful. Sir, just 1 last thing on the unit economics, so -- and this -- it somewhat relates to the point that you mentioned about previous organizations. So obviously, we have a sort of insignificant head start and sort of strong cash flow at this point of time which helps them slightly be more generous in new acquisitions, et cetera. So from there, new start to this journey, do you see that this unit economics, the ideal unit economics to be different for this company, especially in the first few years of the journey, let say, FY '25, '26? And thereafter, somewhat stabilize to where some of the other leading players are? Or we think there is something out there which they are not tapping in the right way and which you will be able to optimize in much better fashion. I mean, just some thoughts around how one should think about more next 2 3-year unit economics and then beyond.

Yes, see, we can only comment about our business. So I'll tell you that. That first of all, see, our business is very different than some others, okay? We are not -- we don't have any B2B business or anything like that, okay? So we are not showing any -- our RPCs and our customer metrics are completely digital, both sourced and serviced and also operated off, where we don't have any kind of a B2B model in place. Secondly, like unlike some of the other privately held brokers, we don't have a focus on mutual fund or anything of that sort because -- and I don't even believe that those journeys are very meaningful for our product. So from the get-go, our -- the way we think about -- the way I'm thinking about the business here is that we really want to get the core journeys correct. And we want to focus on exclusively fully digitally engaged and fully driven by the product experience to launch more features in the coming quarters. And I believe that as far as your question on unit economics is concerned, you can do the math with -- I mean, everybody's numbers -- at least some numbers are public and now even Zerodha's numbers are public. So you -- we don't want to talk about them. But if you -- basically, everybody is publishing the numbers in some shape or form. And you can see that everyone's RPC is down. There is not a single one who has been able to keep the RPC at the same growth rate that they saw even 1.5 years ago. So that tells you that the quality and the deceleration has been much more rapid than the acquisition rate. So it's very important that we do a very critical signal to noise test before we acquire. This is why unlike any strategy I've executed in the past, in 5paisa, the focus is very much on that. And that is how we are looking at growth. So I believe that's the only way to responsibly grow from here on out. And as far as the lead time to catch up with other brokers and all is concerned, see, the simple thing is that these kind of -- with the right capital infusion, anybody can catch up with anybody in no time. And you have seen the examples where a privately listed broker went from nowhere to #2 or #3 last year, right? And that privately held broker really was not able to scale. So I think there's -- those kind of metrics are not very meaningful. The key is can you build that stickiness on the platform and the right digital engine.

[Operator Instructions] Our next question comes from Nagraj Chandrasekar from Emerge Capital.

You've answered most of my questions. Just I wanted some clarity on Note 5 in the Notes to Accounts. There is a reversal of around INR 7 crores which is taken as an expense this quarter. What exactly is it? And why is it being reversed?

Actually, that has marked not for this quarter, that has marked for the previous year because we have to give the comparison. In the -- I mean, December '22 and in complete financial year, we have done a reversal INR 7 crore. This is -- this was in line with SEBI circular that you need to reverse upfront margin penalty which we have charged from the customers. And this is in the same line, which they have given instruction to every broker. So every broker has done that and we have also done that.

Okay. But it's a noncash expense that's relevant to a prior year that's taken this quarter, right?

It's actually -- the question is pertaining to last year. First of all, there is nothing related for this current year. The second is it's a -- it was not expenses. It is a income which brokers has recorded in the earlier period. And after the SEBI involvement, they had to reverse it.

Okay. So your cash expenses are broadly flat Q-o-Q , your actual cash expenses, if you remove this one off at around INR 43 crores, they've not changed much. But your customer additions have gone up significantly to this 80,000 a month cadence. So sir, you mentioned earlier in the call, you said the industry is to be commoditized but you're at this cadence of 80,000 a month now, do you think it will be profitable clients for you, will trade often with you going forward. Sir just any further clarity on what you are doing specifically to make them come to you, what you're doing product or margin or other incentive wise to come get them to trade with us. Where else they're trading, who else are they trading with and why exactly they're coming to us, who are they coming to us from? Any sort of color without any -- whatever you can diverge given competitive [indiscernible] will be great.

Your voice is not proper audible. Can you -- I mean if you are speaking with your earphone and something else, so can you change that because it's not proper audible?

I just want to understand the clients that you have started adding now, and we say we will ramp this up. You said they are going to be profitable. So why exactly are they coming to us? What are we doing products or incentives on margins and otherwise that are making them come to us? And who're they coming to us from mostly?

Yes. The market acquisition, we have obviously multipronged strategy. Some of them have come -- a lot of customers come to us from other brokers where they are not getting quality of service or better product experience, and some of them come from new client acquisitions. We really don't really discern at that level. For us, it's important that as the product experience has gotten much better. Our app rating, for example, has dramatically improved, right? So -- and the core journeys have improved. So we see -- organically, we see people coming and obviously, from our own efforts as well, that is showing a lot of -- that is driving a lot of inbound traffic. Other than that, I think the other features which you described, they are -- we think like those are table stakes for us to execute the business. That's not really a core -- there's no core value proposition there.

Understood. And just 1 more balance sheet clarification on the free cash. Can you give us a sense on the September cash we had on balance sheet? How that translates to free cash for us? How much is margin? How much is client margin, how much is free cash. Just wanted further clarity on that.

So approximately that we have INR 500 crores net worth, and out of that approximately INR 420 crores is the liquid net worth. And another thing, we have a margin in exchange approximately INR 1,700 crores, INR 1,800 crores. And now with the SEBI circular and rules that every client money is with the exchanges. And apart from that, we have also kept margin in FD form.

Okay. So your free cash including the margin is INR 70 crores, INR 80 crores, or is it more?

No, it's a INR 70 crores, INR 80 crores. Yes, it's a INR 70 crores, INR 80 crores. But actually you can't say it's a free cash. It's a cash which you may require at any point of time. If the market is volatile, then you need to give to the exchanges for the margin purpose. So not exactly it's a free cash. It is a safety cash which we have -- safety margin cash which we have, so that in volatile market, we can put more in exchanges.

We have a follow-up question from Dhaval Gada from DSP.

So just a couple of other questions. One relating to the acquisition of clients from IIFL Securities, what's the update on that? And also on a steady state basis for next year, what should one think about from an employee cost perspective, if you could give some clarity excluding ESOP costs, I know that's a variable, but just outside of that, what's the more stable number to look to?

Yes. So I think for the first one, the -- we are -- the discussions are on with the regulators and once -- we don't have any further update really to report on that. Once we hear back, we will be obviously announcing. So the discussions are on and I expect it to take a little bit more time, right? Now regarding the costing, see, as I mentioned, right, we have most of the cost for employee growth in the sense, the team size, the team calibration. I would say we are pretty well staffed. We are pretty well actually staffed up from a human capital point of view, especially on engineering and product. And that's been the focus. Now there maybe expenses on the other teams, like call center sales, whatnot. But those are expected to be very much in line with our growth. And I expect -- more importantly, I expect those to only grow with revenue. I don't expect too much of a upfront hit. Now ESOP, as you very rightly pointed out, we have not taken any ESOP costs at all so far. And we expect that -- we expect to take that some time as -- obviously in the coming quarters or so because that's something that is a part of our long-term plan for incentivization of employees. But that typically as a company, we only do that once a year. This historically, we have done it only once a year and at the March, April time frame.

Sir just to be clear on the ESOP costs, that would likely come in first half of next year in a meaningful way and then gets spread over the following year in a more normal way? I mean sir there will be a large cost, noncash cost which can come in the first half of next financial year?

Yes, yes. That's the way that Ind AS works.

You heard my answer?

Sorry, no, I missed it...

No, no, you're right, absolutely right, which you are saying because that's the way that Ind AS works. Most of the cost comes in first year and then it's followed by the second and third year. So yes, we will see the cost in the -- either in Q4 of this quarter or in -- most likely in Q1. But there could be some in Q4 also but not beyond that. And the rest will get split over subsequent years as Gourav was mentioning.

Our next question comes from [ Thinnai Nima from Ravi & Capital ].

As you said that you are only invested in acquiring high-quality customers, the ones that stick around. So could you help us understand who exactly are the high-quality customers? Is their stickiness determined by the kind of services they avail? For example, is it that the F&O trading customers are more volatile than the ones who simply invest in equities? Any color on client profiling or any trends that you see?

Yes. I mean, we -- this is very sensitive to our core product, to our core business strategies. So obviously, we cannot comment on this. But I'll just give you some broad guidelines, right? I mean, as we have seen, there are a lot of new entrants in the market. Most of them are F&O players. Most of them come in and they experiment with it. 90% of them will leave the system. And from the ones who are left, they will rise up the food chain and they eventually give more RPC than everybody else. That's typically the client profile and behavior. And there are many strategies to retain customers. One of them is obviously you pursue a super app strategy. The other one is the way the private players are going about it, where you build like a good portfolio of alternate adjacencies just as the other -- the Groww has a excellent mutual fund business, right? So you kind of build up something like that and go. But for us, we are not looking at any of those clients because we believe that the audience we are after and the market we want to curate is really exclusively for traders and F&O customers. So for them, we believe that there's a different playbook that has to be thought out. And that market is actually is -- nobody has a handle on that market today, neither of the top 4 players. So that is something we have to work on actively.

[Operator Instructions] There are no further questions. Now I hand over the floor to Narayan Gangadhar for closing comments.

Thank you very much for joining our quarterly earnings call. We look forward to meeting you all again next quarter and keeping your abreast on the progress. If you have any further questions, please e-mail [email protected]. Have a wonderful rest of the day. Thank you.

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. Thank you for your participation and for using Door Sabha's conference call service. You may all disconnect your lines now. Thank you and have a pleasant evening.